Archive | March, 2011

Federal employee pensions and benefits…and you were worried about your state

31 Mar

That's another fine mess you've gotten us into

Does it ever end?

I and others have focused on the states for their generous benefits and underfunding of pension promises, but it appears there is a bigger issue facing taxpayers. Here is an article from the federal website for government employees. One big difference between federal and state workers is that federal employees pay significant premiums for their health benefits.

While there is a tendency for critics to jump on issues like this, here is a word of caution. The goal should not be to eliminate defined benefit pensions or retiree medical. The goal should be to design an affordable, sustainable total benefits package with fair cost sharing.

The private sector has been aggressive in eliminating defined benefit pensions, in eliminating retiree medical and in some cases trimming 401(k) benefits. While companies have cut costs, there are the long-term consequences. We are setting the stage for even more Americans unable to retire with the result they must stay on the job longer. We are creating a new generation more dependent on government programs. In addition, we are creating a new generation with a lower living standard and less discretionary income to spend on the goods and services offered by their former employers.

It appears Americans have already forgotten the experience of the last three years. The mashing of teeth over debt, poor investments and lack of saving is a distant memory. So now what do we do?  Americans are not preparing for retirement, taxes are surely going up, Social Security and Medicare may be trimmed and tax breaks that help sustain current lifestyles are being questioned. 

U.S. Senator Richard Burr (R-NC), along with Senator Tom Coburn (R-OK), introduced on Thursday the Public-Private Employee Retirement Act of 2011 (S. 644) to address long-term liabilities facing the federal government. The legislation would end the defined benefit pension portion of the Federal Employee Retirement System (FERS) for new federal government hires starting in 2013, leaving fully in place the Thrift Savings Plan with the current match (up to 5%) for both current and future federal workers.  The bill would also apply to Members of Congress. 

“Right now, federal government workers receive far more generous retirement benefits than private sector employees. The cost to taxpayers of these benefits is unsustainable and we simply cannot afford it,” said Burr. “We cannot ask taxpayers to continue to foot the bill for public employee benefits that are far more generous than their own.”

“The congressional pension plan currently in place only serves to foster political careerism and should have been frozen years ago.  In addition to enjoying a better benefits package, federal workers generally earn up to 20 percent more than their private sector counterparts.  When American families across the country are being asked to sacrifice in order to meet their basic needs, federal employees and members of Congress should not be the exception.  Defined benefit pension plans are going belly-up across the nation because politicians and employers continue to make promises they cannot keep.  Existing federal employees will be unaffected, and all federal employees would continue to enjoy a 401(k)-style pension plan with a very generous federal match.  But the only responsible thing to do is stop making irresponsible commitments and forcing future generations to pick up the tab,” said Dr. Coburn. 

Currently, federal workers enjoy both a defined benefit pension and a Thrift Savings Plan (equivalent to a 401(k)) with up to a 5% match, paid for by the taxpayers. The average private sector employee gets a 401(k) with a 3% employer match and no pension. Federal workers also continue to enjoy federal health care benefits (FEHB) after they retire, a benefit that is becoming increasingly rare in the private sector.

According to the Senators, the FERS system is currently underfunded by nearly a billion dollars. The old federal pension system, the Civil Service Retirement System (CSRS), is underfunded by $673 billion. In the coming years, as more of the retirement burden falls on the FERS system, the required federal government contributions to FERS will skyrocket, especially in comparison to what federal workers will put into the system. In 2012, the federal government will contribute $22.2 billion to FERS. By 2065, those required contributions will rise to $239.5 billion, with the government paying out $415.3 billion in benefits. 

Current federal government employees and retirees would not be impacted by the changes in the Burr-Coburn bill.

This legislation is likely going nowhere, but the attention to pensions and employee benefits in the public sector is truly amazing to behold.

Reporting value of health benefits on employee’s W-2 in 2012. IRS issues guidance under Notice 2011-28

30 Mar

Shortly after the enactment of health care reform legislation the rumors were flying that the law required reporting the value of health insurance on the employees W-2 thus creating additional taxable income. This was never true. However, now the IRS has issued interim guidance to clarify the entire issue for 2012. IRS Notice 2011-28 contains a series of questions and answers that clarify what is covered under the law, the methodology to be used when calculating the amount reported on the W-2 as well as unusual situations that may apply to terminated employees, HSAs, etc.

Following are some excerpts from the ruling.  NOTE question 19 regarding flexible spending accounts FSAs. Click here to link to Notice 2011-28

This reporting to employees is for their information only, to inform them of the cost of their health care coverage, and does not cause excludable employer-provided health care coverage to become taxable. Nothing in § 6051(a)(14), this notice, or the additional guidance that is contemplated under § 6051(a)(14), causes or will cause otherwise excludable employer-provided health care coverage to become taxable.

The types of coverage described in § 9832(c)(1) (providing that certain “excepted benefits” are not subject to the requirements of chapter 100 of the Code) that are not subject to this reporting requirement are as follows:

• Coverage only for accident, or disability income insurance, or any combination thereof;

• Coverage issued as a supplement to liability insurance;

• Liability insurance, including general liability insurance and automobile liability insurance;

• Workers’ compensation or similar insurance;

• Automobile medical payment insurance;

• Credit-only insurance;

• Other similar insurance coverage, specified in regulations, under which benefits for medical care are secondary or incidental to other insurance benefits.

Q-20: Is the cost of coverage under a dental plan or a vision plan included in the aggregate reportable cost, if that plan is not integrated into a group health plan providing other types of health coverage subject to the reporting requirements of § 6051(a)(14)?

A-20: No. An employer is not required to include the cost of coverage under a dental plan or a vision plan if such plan is not integrated into a group health plan providing additional health care coverage subject to the reporting requirements of § 6051(a)(14). An employer must include the cost of coverage under a dental plan or a vision plan if such plan is integrated into a group health plan providing such additional health care coverage.

Q-24: How may an employer calculate the reportable cost under a plan?

A-24: An employer may calculate the reportable cost under a plan using the COBRA applicable premium method (Q&A-25). Alternatively, (1) an employer that is determining the cost of coverage for an employee covered by the employer’s insured plan may calculate the reportable cost using the premium charged method (Q&A-26); and (2) an employer that subsidizes the cost of coverage or that determines the cost of coverage for a year by applying the cost of coverage in a prior year may calculate the reportable cost using the modified COBRA premium method. For employers that charge employees a composite rate (the same premium for different types of coverage under a plan, for example, a premium for self-only coverage versus family coverage).

The reportable cost for an employee receiving coverage under the plan is the sum of the reportable costs for each period (such as a month) during the year as determined under the method used by the employer. An employer is not required to use the same method for every plan, but must use the same method with respect to a plan for every employee receiving coverage under that plan.

Eliminating the individual mandate under health care reform (PPACA)-GOA asks the “experts” for other ideas

29 Mar

The individual mandate to carry health insurance is likely the most contentious issue with regard to health care reform.  While we await final resolution from the Supreme Court, others in Congress are exploring the ramifications of not having such a mandate.  That possibility delights some critics on the right, but not so fast.  While the thought of a mandate to do anything is unappealing, especially when it comes from the government, the reality is that many people are simply irresponsible, thus creating problems for the rest of the population (I was going to say the rest of us, but decided not to be presumptuous). In addition, there is the little matter of affordability.

Give me my own iPad and I will write a better law

In response to a request from Senator Ben Nelson the General Accountability Office (GAO) prepared a report on the impact of eliminating the individual mandate under PPACA. Here is a summary from the letter to Senator Nelson. Note the alternatives suggested by the experts interviewed.

According to footnotes in the report uncompensated care for the uninsured exceeds $57 billion a year (equal to the cost of 1,838 F-15s we could crash in some desert).  These costs are paid for by somebody (get out your mirror). One of the alternatives to dealing with this tremendous expense and cost-shifting is to implement a separate tax to pay for uncompensated care (I hope there is not wide-spread apoplexy among the Tea Party crowd).  Think about that, if there is a new tax to pay for this health care, where is the incentive to buy health insurance?

None of the alternatives suggested by the experts will achieve the level of coverage that a mandate will and some would make it more difficult for many Americans to obtain coverage. This is recognized in the report.  Also, never forget that the greatest barrier to most people obtaining insurance is the cost.  Aside from the distasteful aspects of a mandate, without addressing underlying costs, subsidizing premiums as part of the mandate only means that those subsidy amounts must increase at the rate of health care inflation or for millions of Americans the affordability of what they are mandated to do goes out the window.

Private Health Insurance Coverage: Expert Views on Approaches to Encourage Voluntary Enrollment
GAO-11-392R February 25, 2011
Full Report (PDF, 28 pages)  


To help expand health insurance coverage among the 50 million uninsured Americans, the Patient Protection and Affordable Care Act as amended (PPACA) mandates that individuals, subject to certain exceptions, obtain health insurance coverage or pay a financial penalty beginning in 2014–the “individual mandate”. At the same time, PPACA generally requires insurers to accept all applicants, regardless of health status, and prohibits insurers from excluding coverage based on any preexisting conditions. An individual mandate such as PPACA requires has been the subject of continued debate.

Many health care policy experts have stressed the importance of a mandate in expanding health care coverage and keeping premiums affordable. For example, experts have noted that such a federal requirement may be necessary to prompt many individuals, such as younger, healthier individuals, to obtain coverage they otherwise would forego–particularly once they are guaranteed access to that coverage later when they may need it. They suggest that bringing these younger, healthier individuals into the insurance market is necessary to avoid adverse selection, whereby disproportionately less healthy individuals who need health care services enroll in coverage, leading to higher premiums that further discourage healthy individuals from enrolling.

Some experts have argued that the individual mandate does not go far enough to ensure that all of the uninsured enroll, and that to do so would require heavier penalties that are fully enforced to be truly effective. Other experts suggest that, rather than requiring individuals to obtain health insurance coverage, a more appropriate role for the federal government would be to consider alternatives to encourage voluntary enrollment. Some of these experts also question the legality of a federal mandate. Since its enactment, the federal mandate has been subject to a number of court challenges to its constitutionality.

Because of the possibility that legislative or judicial action could result in a change to, or elimination of, the mandate, you asked us to identify potential alternatives to encourage, rather than require individuals to obtain private health insurance coverage. For this report, we obtained the views of multiple experts on the range of approaches Congress could consider to encourage voluntary enrollment in private health insurance coverage.

The experts we interviewed discussed several specific approaches to encourage voluntary health insurance enrollment during our interviews. The approaches are summarized below, generally presented in the order of frequency with which they were proposed by the experts for consideration. These approaches are not endorsed by GAO, nor necessarily by any particular experts we interviewed, or the organizations they represent.

(1) Modify open enrollment periods and impose late enrollment penalties.
(2) Expand employers’ roles in autoenrolling and facilitating employees’ health insurance enrollment.
(3) Conduct a public education and outreach campaign.
(4) Provide broad access to personalized assistance for health coverage enrollment.
(5) Impose a tax to pay for uncompensated care.
6) Allow greater variation in premium rates based on enrollee age. 

(7) Condition the receipt of certain government services upon proof of health insurance coverage.
(8) Use health insurance agents and brokers differently.
(9) Require or encourage credit rating agencies to use health insurance status as a factor in determining credit ratings.

In discussing these approaches, four key themes emerged.

First, experts emphasized that most people would prefer to purchase health insurance coverage; however, to the extent that high cost is a barrier, the use of financial incentives is key.

Second, they stated that regardless of the particular approach taken to increase voluntary enrollment in the absence of an individual mandate, the availability of affordable, high-quality health care plans with a basic set of benefits, and full coverage of preventive care services is essential to encouraging voluntary enrollment in the coverage.

Third, experts said that strong marketing and public education from trusted, community-based sources informing people about their health care choices, their costs, and the consequences of not enrolling in a timely manner are important.

And fourth, they said convenient access to the health insurance system through multiple access points staffed by knowledgeable individuals would further facilitate enrollment.

Experts expressed important cautions in interpreting their comments on these approaches. Not all the experts concurred that any particular approach merited consideration, and those who proposed an approach for consideration did not necessarily suggest its impact would be significant or comparable to that of an individual mandate. Experts noted that various approaches would have different impacts on encouraging voluntary enrollment, and that a combination of multiple approaches holds more potential to encourage voluntary enrollment than any single approach. For example, a marketing and public education campaign may be combined with other approaches, and would be important to the successful implementation of any effort to encourage enrollment in health insurance. Furthermore, they emphasized that independent research is required to fully evaluate the potential effectiveness and legal or other implications associated with any approach or combination.

Medicare Part B premium increase in 2012 likely to fully offset Social Security COLA projected at 1.2%. This is a good lesson for anyone planning on retiring.

27 Mar

According to the Trustees projections, Social Security recipients may see a 1.2% cost of living adjustment in their monthly benefit in 2012. However, that increase will quickly disappear thanks to growing Medicare premiums.

The “hold harmless” provision which states that the Social Security benefit can’t decrease as a result of a Part B premium increase assures that most Americans receiving Social Security will not see their benefit go down, but neither will the benefit increase, for the third year in a row.

Higher income beneficiaries are not protected by the hold harmless provision and will see an increase in Medicare premiums and a resulting decrease in their net Social Security benefit.

Those new to Social Security and Medicare in 2012 will see the effects of all Part B premium increases over the last three years.

If you would like to see a more detailed explanation of all this check out the Kaiser Family Foundation Report.

Individuals paying for Medigap coverage or for employer based Medicare supplemental coverage will see a further reduction in their net income as a result of increases in those premiums. 

There is a lesson to be learned here for those who are not yet retired.  Health care costs and premiums will continue to consume an ever-increasing portion of your retirement income and those costs are largely income insensitive meaning that if you have a retirement income of $30,000 or $300,000 your health care costs will be very much the same.  The time to plan for this is now, now, now!

October 4, 2011 Update


How about a $59,000 charge for a $74 ultrasound? Who should care? Why in and out of network charges are bogus

25 Mar

Recently I wrote an article stating that one of the main problems in the health care system is the entire structure of participating and non-participating doctors, networks and the fact that such a system places the insurer as the only entity that cares about costs when in fact the two most responsible parties who should be most concerned are the patient and the health care provider.

My case has been made by a recent event involving Aetna and out of network doctors in New Jersey.  You must read this article from Bloomberg.

To get a glimpse of how ass backwards our system is, take a look at this excerpt from the article relating an older event. 

AMA Lawsuits

Aetna tried in 2007 to impose caps on some out-of-network payments, prompting doctor complaints to the New Jersey Department of Banking and Insurance. The agency sided with the doctors, fined the company $2.5 million, and ordered it to pay out-of-network practitioners enough so that patients wouldn’t be asked to pay balances other than co-pays.

In 2009, Aetna, UnitedHealth Group Inc. (UNH), Cigna Corp. (CI) and WellPoint Inc. (WLP) were accused by the New York attorney general of underpaying out-of-network physicians by manipulating a database used to calculate payments. They paid a total of $90 million in settlements without admitting wrongdoing. UnitedHealthcare agreed that year to pay $350 million to settle a lawsuit by the American Medical Association over the same issues. Similar AMA lawsuits against Aetna, Cigna and Wellpoint are pending. 

“So patients wouldn’t be asked to pay balances other than co-pays”

If the insurer imposed caps on out of network payments to doctors who are not in the network because they charge high fees, the patient would be responsible, yikes we can’t have that .  Rather, we force the insurer to pay the high fee and wonder why premiums keep rising and why most consumers don’t give a hoot what their health care costs.


Do you still think the problem is those darn insurance companies?

How many Americans do you think would side with the doctors and say that the insurance company should pay what the doctors charge?   Waaaaaay too many!

Over the years the states have sought more and new sources of revenue, where has all the money gone?

25 Mar

Do you remember when your state had no income tax, no sales tax, no legalized gambling and no state lottery to pay the bills?  How did they do it?

How do expenses continue to climb to consume each penny of new revenue and still there is not enough money to fund obligations or quell borrowing?

How does that happen?

Come a little closer, I won't bite

You let it happen by electing people who promise more and more and by not asking questions about how they are going to pay for it all. 

I recall a governor who was heralded for lowering property taxes and providing rebates.  Whoopee!   Not really, she did it by skipping pension contributions and using a fund set aside for retiree medical expenses for state workers…oops.  I know a state where health insurance premiums for state workers are intentionally set below the projected costs of the plan so that high (justified) increases can be avoided…temporarily.

P.S.  Don’t be so smug if your state has no income tax, it no doubt has high fees on a number of things to make up the difference.

I’m still critical of employer wellness programs when it comes to reducing health care costs

24 Mar

Measuring the results of a wellness program is always questionable. In fact, most employers don’t measure much and what they do measure has little to do with lowering health care costs. Here is an example of some guidance for measuring a wellness program. It comes from an e-mail I received.

Year 1 Goal: Focus on Participation

60% of employees participate in at least one program element

Year 2 Goal: Add Risk Reduction and Satisfaction Metrics

Health risks improve by at least 2% as measured by health appraisal questionnaire
90% employee satisfaction with the program

Measurable improvement in biometric scores(e.g., BMI, cholesterol, blood pressure) compared to year 1

Year 3 Goal: Increase Expectations; Add Financial Performance Metrics

80% employee participation in health screening and other programs over the previous three-year period

50% spouse participation in health screening

Measurable reduction in health care costs and/or absence rates, corresponding to health risk and/or biometric improvements

A few thoughts:

Participation in one or all elements of a wellness program does not mean you are saving money or improving productivity. That is like assuming employees who attend a retirement or financial planning seminar leave the meeting and actually implement the strategies presented and follow them for the next thirty years, they don’t.

Employee satisfaction with the program is no measure. Employees will be satisfied with a free lunch too, even if burgers, fries and a milkshake are on the menu.

As for a “measurable” reduction in health care costs or absence rate…after three years of such a program, not even a slowing of costs, but a reduction…give me a break.

In addition, how are you going to measure that and attribute it to your employees now knowing their BMI or cholesterol levels?  This is like politicians saying they are raising the budget by $50 billion instead of $60 billion while claiming they have reduced the budget deficit by $10 billion.

While there is hope that better lifestyles will improve health and perhaps manage costs over time, in the short-term health costs may rise with these programs. The person learning of high blood pressure may now be under a doctor’s care taking medication. The same is true for the person with high cholesterol or glucose. Is this better than some more serious and expensive result left untreated?  Of course it is, but that hardly represents a measurable reduction in health care costs within three years and likely much longer.  In addition, the individual must remain an employee for many years in order for the current employer to reap any benefit.

All this for a lousy tee shirt and a $25 credit!

There are a number of organizations selling wellness programs and making a lot of money doing it.  Some employers like the publicity claiming success in lowering health care costs because their employees take a health risk assessment. Some in HR are making a career out of health and wellness, it’s the in thing to do after all.  Today wellness is like apple pie and mother, who can mount an argument against it? 

That’s all fine and no doubt over time many people will benefit, but employers embracing the concept should look past the hype and understand the real impact and cost of such programs. If the goal is to save money, employers must establish realistic long-term goals and measures that are statistically valid, track the actual behavior and claims costs of individuals, etc.   Let’s see claims data on each employee for five years before and five years after the start of a wellness program.    If you don’t find that the most active participants already had lower claims experience and health care costs are lower than at the start of the program, I will be a believer.  That’s a lot easier said than done.

Relatively few (so far) on Medicare benefit from drug discount program

23 Mar

According to a report on Kaiser Health News;

“the health care reform law’s discount on brand-name drugs for some Medicare beneficiaries has been used by 48,000 people who saved a combined $38 million – $800 on average — through the first two months of this year, according to the Department of Health and Human Services.”

As a frame of reference there are some forty-six million people with Medicare. Many of the beneficiaries using the 50% discount were under age 65 receiving disability.

Although many of the drugs do not have a generic alternative, the question has been raised whether the 50% discount is encouraging people to use a brand rather than pay the full cost of a generic. More likely is the possibility that people are unaware of a generic alternative or that the full cost of the generic could be less than 50% of the cost of the brand drug.

The Tea Party has valid gripes, but that’s not enough. When you don’t like something, you must have an alternative.

23 Mar

Former Speaker of the House Newt Gingrich spea...

Image via Wikipedia

The following is from a Tea Party website.  Reading this statement it becomes clear how some Americans, especially those on the left can criticize, sometimes harshly, the Tea Party movement.  This rhetoric is an oversimplification and displays a lack of understanding of the issue.  It borders on childish.   

Now when you look at health care for what it is, when you look at the US Constitution, when you look at the history of human freedom, when you accept the American value of the primacy of the individual over the fleeting wishes of the government, it becomes apparent that those who claim that health care is a right simply want to extend a form of government welfare.

When I make this argument to my “Big Government” friends, they come back at me with…well, if people don’t have health insurance, they will just go to the hospitals and we will end up paying for them anyway. Why should that be? We don’t let people steal food from a supermarket or an apartment from a landlord or clothing from a local shop. Why do we let them take health care from a hospital without paying for it?

Well my “Big Government” friends contend that it’s charity. They are wrong again. It is impossible to be charitable with someone else’s money. Charity comes from your heart, not the government spending your money. When we pay our taxes to the government and it gives that money away, that’s not charity, that’s welfare. When the government takes more money, so it can have money to give away, that’s not charity, that’s theft and when the government forces hospitals to provide free health care to those who can’t or won’t care for themselves, that’s not charity, that’s slavery. That’s why we now have Constitutional chaos, because the government steals and enslaves, and we outlawed that a long time ago.

Government may be too big, it may be inefficient, it may be the result of a political animal, spending may be too high, but taxation and government spending is not theft.  No, we don’t let people steal from a supermarket or an apartment landlord.  But we do send them to food banks and provide food stamps and as far as landlords go, we have shelters such as they are, or we have what many see a better on the street or a car. 

Clearly there are people who do not pull their weight, who game the system and some who are perfectly happy to let someone else deal with their problems and provide for them.  That is not the government’s fault, it is the fault of human nature.  Government can’t solve all of our problems.  Take poverty for example, how many uncounted trillions have been spent over the years to wipe out poverty and yet it has been with us since time began and still is with us.

If you follow this pure Tea Party logic, Social Security is welfare (payroll taxes don’t cover your benefits), Medicare is welfare (your premiums are a fraction of the true cost), college loans are welfare (you do nothing for the benefit) the tax-free status of employer-provided health benefits is welfare (where is the logic, those who have employer coverage are subsidized by those who don’t) and deducting interest on your mortgage is welfare (people who rent cannot deduct their rent or property taxes, they are subsidizing homeowners). It is all one big system and we are all part of it.

I happen to think the Obama approach to so-called health care reform is wrong, mainly because it does not address the fundamental problem of cost while expanding coverage and because the way it is structured creates a massive new entitlement no different from Medicare.  But that does not mean government does not have to assist in addressing the problem. 

The Tea Party and the rest of us can yell all we want against government intervention and spending, but the truth is we like it that way or at the very least we have become addicted to government programs.  I would like to see more personal responsibility and accountability in many areas, but I have been around long enough and worked with people long enough regarding their health care benefits and retirement planning to know that taking more responsibility just isn’t going to happen for the majority of people.  There goes that human nature thing again.  

The fact is that defense makes up 20% of the federal budget, Social Security 20% and Medicare and Medicaid 21% .  Now unless everyone in the Tea Party wants this 61% of spending cut, dealing with the remaining 40% is not of much help.  Also, let’s not forget interest on the public debt.  For the month of February 2011 the interest expense for the US Treasury was $21,759,253,957.26, that is twenty-one billion, seven hundred fifty-nine million, two hundred fifty-three thousand, nine hundred fifty-seven and twenty-six cents. Half of that interest goes to foreign governments…talk about foreign aid. 

Everyone, including politicians, is for lower taxes, balanced budgets, and less spending so why don’t we have all of that?  Because it is easier to pay your taxes (or not for forty percent of Americans or so) and to benefit from all the goodies provided by government, than it is to take personal responsibility. 

So Tea Party folks I ask you, do you have adequate life insurance, are you saving prudently for retirement and perhaps college, do you live entirely within your means without unnecessary debt, do you carry health insurance, do you pay your own way in all things?  For the few who may be able to answer yes to all those questions, you still must have viable alternatives to the current state to make the changes you seek…good luck!

How to instill real competition in health care, empower the patient, allow insurance companies to be insurance companies and save money for us all. What health care reform REALLY looks like.

21 Mar

How much does health care really cost?  Who knows, and that is part of the problem.

Under our so-called “system” Medicare pays what it likes, insurance companies negotiate what they will pay and what “participating” providers will accept, private payers receive entirely different substantially higher bills and physicians who consider themselves special (I was going to say greedy) accept no insurance plans and charge what they see as their value. Interestingly, this later group is often perceived as higher quality providers.  In my forty-eight years managing health benefit plans rarely did a patient perceive the doctor as charging too much, rather the insurer paid too little. “The doctor saved my life, my insurance should pay, “right, with someone else’s money.  If you yell and scream or sooth the savage beast, you can usually get a fee reduced even from a non- par doctor.

So how much does medical care cost, what are the profit margins, what incentives exist for a group of doctors to run an efficient business, invest in technology or be prudent but conservative in the care order?  As one doctor recently told me, “I can show you a list of scores of tests we can do, but let’s start with this one.”  Would I have known the difference if he had ordered ten tests?

I don’t know the answers, but I do know there is considerable room for improvement in all areas.

For starters let’s eliminate the practice of negotiating fees and the concept of participating doctors.  In its place each insurer determines what it will pay for a given service according to a fee schedule.   That then forms the basis for the premiums it charges. Consumers decide how much they want to spend on premiums and out-of-pocket for their care.  Doctors will quickly learn they are competing not only on quality (ha!), but cost because the patient will be on the hook for any amount not paid by the insurer. Doctors and hospitals who are most efficient and offer quality services will be able to attract more patients and still earn a fair profit. 

Real life example: Healthy baby born February 14, 2011 via C-section.  Hospital charge for the baby was $11,000 for four nights. Negotiated fee was $2,948.  Charge for the same stay for the mother was $28,450 and the negotiated fee was $8,498.    (visitor parking extra)

Insurers can adjust their payment schedule as they see fit balancing the need to have competitive premiums and to attract customers by providing meaningful coverage.  Insurers have the ability to sell their product in any state under uniform rules and requirements.

The concept of “participating provider” is gone. Insurance companies can operate efficiently anywhere because they no longer need a large base of subscribers in order to gain negotiating leverage with providers. They will save millions because the need to maintain networks is gone. Their ability to be efficient will dictate their ability to attract customers.   

Consumers will have 100 percent freedom to seek medical care from any provider unencumbered by their insurance.  If they don’t like the payments being made, they can switch carriers and pay a higher premium for higher payments. If they don’t want to pay higher premiums they find a lower cost provider (or pay more at the point of service)…remember, consumers (patients) can use any health care provider they like.  For advocates of consumer directed health care plans, this provides the ultimate test as to what control Americans want over their care and it’s cost. Consumers are in charge, but assume the responsibility to act prudently.

This is real competition because unlike today, both the health care providers and the insurers are competing for business from an empowered consumer. Initially there will be some shock for all parties, but gradually the ideas of pay for performance, accountability, personal responsibility and true competition will take hold.

Most important, the responsibility for managing health care costs shifts from the insurer to the provider and secondarily to the consumer…and no one comes between you and your doctor!  However, a greatly enhanced coordinated care management role for the primary care doctor would be highly desirable.

There is probably some old geezer like me who is saying, this is not a new idea, back in the 1960s health insurance paid via a fee schedule similar to this. Similar yes, but back then there were still participating doctors and hospitals and many plans paid hospitals with no coinsurance for the patient.  The patient was insulated from costs based on the decision as to which provider to use. 

For individuals needing assistance with health care costs, money will be placed in a form of Health Savings Account to help offset out-of-pocket costs relative to income level. These funds can be rolled from year to year if unused, but never returned to the individual or survivors.  The idea is to move from a defined benefit to a defined contribution model and thus maintain incentives to be prudent consumers as much as possible.  This is not perfect.  Health care will never be truly subject to market based consumerism. 

So to recap:

  1. Health insurance companies provide fixed fee schedules (including for hospital stays) which are reflected in the premiums charged, higher premiums for a plan the higher the fee schedule.  They are free to determine the fee payments based on any methodology they like.  The most efficient health insurers will be able to provide the best fee schedule for the lowest price.  Insurers are free to offer supplemental services such as case and disease management, etc.
  2. Health care providers set their prices as they see fit, there are no provider contracts, no networks, and no discounts.  If health care costs rise at unacceptable levels it is entirely the responsibility of the health care providers.  Investing in new equipment and new technology will have to be balanced with the additional value created and the competitive nature of their pricing.  Individual versus group practice will have to be re-evaluated.  Health care providers make more money by being efficient and by attracting patients based on their reputation for quality and the competitiveness of their fees.
  3. Consumers assess the fee schedules of an insurance company together with the premiums charged.  They also have the responsibility to seek health care providers whose fees come closest to the fee schedule they have selected.  Patients decide if perceived higher quality is worth a premium price. 

Transparency is the key to all of this.  That applies to reimbursements, to fees charged and most important to quality factors.  We must do a much better job of providing objective quality data to patients both for institutions and on individual health care providers.  Along these lines we must ban advertising by groups and hospitals that use unsubstantiated claims of high quality and better outcomes and replace it with hard facts accessible from an independent source. We must educate consumers/patients on appropriate health care, geographic variables and on comparative effectiveness.  In other words, tell the truth.  We must dispel the notions that more care is automatically better health care and that higher costs mean higher quality.

You want health care reform, here is what it looks like!

  • Attacking health care costs from the bottom up. What it takes to reform health care and why we can’t do it. (

What’s “up” doc? Hard times for Medicare

20 Mar

According to news reports, including Bloomberg:

Medicare Illegally Paid For Seniors’ Viagra, U.S. Audit Says

The U.S. Medicare program improperly spent more than $3 million in 2007 and 2008 to buy Pfizer Inc.’s Viagra and other erectile dysfunction drugs for senior citizens, government investigators said.

If appropriate spending by Medicare gets a rise out of you, this one should do it. 

Many employer plans cover ED drugs, mostly because if they didn’t someone would be complaining that they cover birth control drugs for women so why not give men a chance too.  Of course women demand coverage of contraceptives if there is even a hint of coverage of ED drugs for men.  Logically though one would think that if you did not cover the ED drug, there would be less of a need for the birth control drug.  Never mind, this is getting too technical.

Here is a thought for all those who think health insurance is too costly, lifestyle drugs such as those mentioned should not be covered by any health plan and neither should such things as a vasectomy.  They are not insurable risks, they are choices that if you want to make you should pay for.

Please don’t give this blog URL to Planned Parenthood.

Deficits would total $9.5 trillion between 2012 and 2021 under the President’s budget, $2.7 trillion more than the amounts projected in CBO’s March baseline.

19 Mar

Total U.S. healthcare spending. 1960 to 2007. ...

Image via Wikipedia

Does anyone get it?  I guess I don’t.  Higher and higher deficits, more and more leveraging of the economy and yet not only does spending continue, it increases.  Left leaning economists think all this is no big deal, right leaning economists see a catastrophe on the horizon.  

Who the hell is right?

One thing is clear, nobody knows where all this is going, not the President, not Congress and not the CBO.  Wild eyed assumptions and pie in the sky ideas are driving this spending.  Political maneuvering with an eye on the 2012 elections are more of a consideration than the fiscal certainty of the United States.  Idealists trying to solve every social ill of human beings are dominating over common sense and fiscal responsibility. 

Three things are certain:

1. You can’t trust the assumptions especially projections for ten years or more

2. You can count on Congress to keep acting like politicians, to spend all new tax revenue and not to follow through on projected budget cuts

3. There will be unintended consequences and they will be mostly negative for you.

According to a new report from the Congressional Budget Office deficits would total $9.5 trillion between 2012 and 2021 under the President’s budget, $2.7 trillion more than the amounts projected in CBO’s March baseline. Debt held by the public would rise from 69 percent of GDP in 2011 to 87 percent of GDP in 2021.

And here is more from the CBO report:

 Under current law, payment rates for physicians’ services under Part B of Medicare are slated to decline by 29 percent in January 2012 and by additional amounts in later years. The President proposes to avoid those reductions by freezing payment rates at their 2011 levels for the next 10 years. That policy would increase net outlays by $298 billion over the 2012–2021 period, CBO estimates. Under the President’s budget, the costs of the freeze for the first two years would be offset by various proposals involving Medicare, Medicaid, and the regulation of prescription drugs, which CBO estimates would reduce mandatory spending by a total of $48 billion over the coming decade The President’s budget also calls for offsetting the costs of the payment freeze in later years, but it does not provide any policy details about future spending cuts for that purpose. Consequently, CBO did not estimate any savings for such future cuts. 

Updating baseline projections of federal spending on health care programs does not automatically result in a complete reestimate of the budgetary impact of last year’s major health care legislation under the assumptions of the new baseline. However, the costs or savings from some aspects of that legislation can be separately identified in the baseline projections. In particular, the provisions related to expanding health insurance coverage were projected to increase the deficit between 2012 and 2021 by $1.04 trillion, on net, in CBO’s January baseline; they are now projected to increase the deficit by $1.13 trillion over that period. But those effects are only a part of the total budgetary impact of the legislation. CBO’s previous estimate showed that the effects of the other provisions on mandatory spending and revenues, taken together, would reduce the deficit by roughly $1.25 trillion over the 2012–2021 period—meaning that the legislation, as a whole, was projected to reduce the deficit over years. The budgetary effects of all of those other provisions cannot be separately identified in the new baseline.


Teachers are getting the short end of the stick and the people they support are holding the stick

18 Mar

Alexi Giannoulias, state treasurer of Illinois

Image via Wikipedia

Many teachers in Illinois contribute nearly ten percent of their pay to their pension. That is a lot of money and in most cases should be sufficient to FULLY fund a good pension and yet the Illinois pension system is only 45% funded.

The main reason is that for years the politicians in Illinois failed to make the appropriate contributions to the fund.

Where is the outrage? Illinois is only one example among the states. What citizens of Illinois, New Jersey, New York,California and other states should be asking is where did the money go?  What was the money spent on if not these massive obligations?  Chances are it went to other programs to appease different voters, property tax rebates, special programs for seniors, low-income or whatever.  Given the condition of overall finances for many of the states, it appears that not only did politicians not fund their contractual obligations, they also did not have the money to support a wide array of promises.

Rather than supporting these politicians who for years have made promises they don’t keep, public employee unions should be holding them accountable.  In fact, these unions take their members money and support Democratic politicians almost exclusively.  Democrats are perceived as most friendly to “working” people, most friendly to unions.  If that were truly the case you would think that these politicians would have assured that pension promises were funded and that the state was managed for the long-term benefit of all “working” citizens, if not all citizens.  Instead teachers and other public employees are the victims of the pandering by “their” politicians and the collusion of their unions.

At the same time we vilify those politicians who attempt to break this no win cycle because all we see is the immediate and not long-term impact.  Union members vote out those who attempt to correct this painful problem and vote in politicians of like mind to those who created the problem.  Can we conclude that public employees are their own worst enemy?

While union leaders make a big deal of supporting working families and condemn the wealthy among us, top union leaders fully enjoy the benefits of their position.  While it is easy to find the salary and total compensation of corporate officers, it is surprisingly difficult to find the same information for top union leaders.  I have been searching for days and can only find bits and pieces of information about some individuals.  However, even that is enough information to easily conclude that top union leaders earn a quarter of a million dollars a year and up, not including many desirable perks.  There are many with total compensation packages of $500,000 or more.

It seems to me that a corporation taking compensation from earnings and hence shareholders is a bit different from union officers taking generous compensation packages from their members wages.

Illegal immigrants receive Social Security: a widely circulated myth passed along on the Internet

17 Mar

Illegal Aliens (film)

Image via Wikipedia

I repeatedly see e-mails and other information that claims Americans are being ripped off by illegal aliens who do not pay taxes, but collect Social Security benefits.

That simply is not true.  Illegal aliens are not eligible for these benefits or most others as well, except things like emergency medical care.  In fact quite the opposite is true.  Illegal aliens pay a considerable amount in Social Security taxes because they must present a Social Security number when employed, but the numbers don’t belong to them.  See a summary below from Wikipedia:

Illegal immigrants pay social security payroll taxes but are not eligible for benefits. During 2006, Standard & Poor’s analysts wrote: “Each year, for example, the U.S. Social Security Administration maintains roughly $6 billion to $7 billion of Social Security contributions in an “earnings suspense file” — an account for W-2 tax forms that cannot be matched to the correct Social Security number. The vast majority of these numbers are attributable to undocumented workers who will never claim their benefits.”[13]

The Social Security Administration has stated that it believes unauthorized work by non-citizens is a major cause of wage items being posted as erroneous wage reports instead of on an individuals earnings record.[18] When Social Security numbers are already in use; names do not match the numbers or the numbers are fake, or the person of record is too old, young, dead etc., the earnings reported to the Social Security Agency are put in an Earnings Suspense file [ESF]. The Social Security spends about $100 million a year and corrects all but about 2% of these. From Tax Years (TY) 1937 through 2003 the ESF had accumulated about 255 million mismatched wage reports, representing $520 billion in wages and about $75 billion in employment taxes paid into the over $1.5 trillion in the Social Security Trust funds. As of October 2005, approximately 8.8 million wage reports, representing $57.8 billion in wages remained unresolved in the suspense file for TY 2003.[18]

Will wellness visit the hospital?

16 Mar

I was recently in a hospital waiting area and decided I needed a cup of coffee so off to the cafeteria I went.

I found Dunkin Donuts coffee no less plus an array of pastries and eggs, bacon, sausage, biscuits, grits with lots of butter and even corned beef hash. Of yeah, somewhere in the corner there was oatmeal too.

This is a hospital? Then I thought, well they are in the business of treating the unwell are they not. This is the fourth hospital in two states that I have been in in the last month and they are all the same in their “healthy” culinary selections. One hospital even had a McDonalds in the lobby.

What’s wrong with this picture?

Employers are spending millions on wellness programs and education, we are glued to the TV watching the Biggest Loser and the First Lady is trying to educate about obesity while our nations hospitals are doing their best to reverse any progress.

I always knew hospitals were a unhealthy place to be, but “do you want fries with that?” seems a bit over the top.

This has got to be an plot perpetrated by the medical industrial complex and of course the Tea Party

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